Question

List the bank regulatory agencies and state their functions.

Answer 1

After the Great Recession hit the U.S., the government instituted a number of new regulations and reporting procedures to prevent it occurring again in the future. Many fault the banking industry with the Great Recession, as they inflated the value of many items, such as houses, in the U.S. economy. When the values were leveled due to economic factors, it was revealed that there were many errors in the way that banks provided loans.

Different types of regulatory reports

Licensing and supervision

Banks usually require a banking license from a national bank regulator before they are permitted to carry on a banking business, whether within the jurisdiction or as an offshore bank. The regulator supervises licensed banks for compliance with the requirements and responds to breaches of the requirements by obtaining undertakings, giving directions, imposing penalties or (ultimately) revoking the bank's license.

Minimum requirements

A national bank regulator imposes requirements on banks in order to promote the objectives of the regulator. Often, these requirements are closely tied to the level of risk exposure for a certain sector of the bank. The most important minimum requirement in banking regulation is maintaining minimum capital ratios. To some extent, U.S. banks have some leeway in determining who will supervise and regulate them.

Market discipline

The regulator requires banks to publicly disclose financial and other information, and depositors and other creditors are able to use this information to assess the level of risk and to make investment decisions. As a result of this, the bank is subject to market discipline and the regulator can also use market pricing information as an indicator of the bank's financial health.

Financial reporting and disclosure requirements

Among the most important regulations that are placed on banking institutions is the requirement for disclosure of the bank's finances. Particularly for banks that trade on the public market, in the US for example the Securities and Exchange Commission (SEC) requires management to prepare annual financial statements according to a financial reporting standard, have them audited, and to register or publish them. Often, these banks are even required to prepare more frequent financial disclosures, such as Quarterly Disclosure Statements. The Sarbanes–Oxley Act of 2002 outlines in detail the exact structure of the reports that the SEC requires.

Every advanced country regulates banks very heavily for two reasons.

1. The economy depends so heavily on credit that banks can, in effect, hold the entire country to ransom. Governments hate that.
2. Small banks can be driven out of business by heavy regulation, but big banks can live with it. Big banks have enough political influence to make sure that regulation is heavy, thus driving their competition out of business.
3. Ruthless efficiency.
4. An almost fanatical loyalty to the Pope.
5. People who use banks -- nearly all of us -- want banks to be very safe. Banks want to make profits by taking risks.